Five months ago, the IMF was quite sanguine about it all, predicting another boom year for the global economy and only a gentle slowdown in the US. Today, its face is glum.

Yesterday the IMF released its stability report, and all of a sudden the credit crisis has it worried. “The potential consequences of this episode should not be underestimated,” it said, and even if the credit crisis proves short lived, the implications for the global economy could be “far reaching and significant.”

Many are now questioning whether the US can avoid recession, although at the moment, the general feeling is that it can. It really comes down to this, how much does the Fed dare reduce rates to boost demand to stop recession, without causing inflation. It’s a fine balancing act, and one that the Fed is by no means certain of getting right.

Still, the US may be in a bit of a state, and the UK might suffer an unpleasant 2008 (meaning, by the way, the General Election should either be called this year, or not until the government has no choice but to), but at least we know the rest of the world is doing okay. The developing world is doing so well, that it will help bail us out and mitigate against the effects of a US slowdown. That’s what they have been saying, anyway.
Well, maybe not. The IMF also said this: “Private-sector borrowers in certain emerging markets are adopting relatively risky strategies to raise financing, most noticeably, in some countries in Eastern Europe and Central Asia, banks are increasingly using capital market financing to help finance credit growth.’‘
In other words, debt is building up elsewhere too, which could create another problem in the months ahead. If you like this article, why not register for our daily newsletter? Or if you already receive the newsletter, then start spreading the news and tell your friends and colleagues. To register visit this link

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